Standard Metals Corp., In re

• Decision Date: 20 April 1987
• Docket Number: No. 85-2783,85-2783
• Citation: 817 F.2d 625
• Parties: , 16 Collier Bankr.Cas.2d 952, 7 Fed.R.Serv.3d 956, 15 Bankr.Ct.Dec. 1321, Bankr. L. Rep. P 71,760 In re STANDARD METALS CORPORATION, Debtor. Dann S. SHEFTELMAN, individually and on behalf of all others similarly situated, Creditor-Appellant, v. STANDARD METALS CORPORATION, Creditors' Committee; Securities and Exchange Commission; and National Bank of Georgia, Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 625

817 F.2d 625

55 USLW 2587, 16 Collier Bankr.Cas.2d 952,

7 Fed.R.Serv.3d 956,

15 Bankr.Ct.Dec. 1321, Bankr. L. Rep. P 71,760

In re STANDARD METALS CORPORATION, Debtor Dann S. SHEFTELMAN, individually and on behalf of all others similarly situated, Creditor-Appellant, v. STANDARD METALS CORPORATION, Creditors' Committee Securities and Exchange Commission; and National Bank of Georgia, Appellees.

No. 85-2783.

United States Court of Appeals Tenth Circuit.

April 20, 1987.

Nicholas Chimicles of Greenfield & Chimicles, Haverford, Pa. (Robert H. Levin, of Adelman, Lavine, Krasny, Gold & Levin, Philadelphia, Pa. and Michael E. Romero, of Isaacson, Rosenbaum, Woods, Snow & Levy, Denver, Colo., with him on the briefs), for creditor-appellant.

Glen E. Keller, Jr. of Davis, Graham & Stubbs, Denver, Colo. (Christopher L. Richardson and C. Randel Lewis, of Davis, Graham & Stubbs, Denver, Colo., with him on the brief), for debtor-appellee.

Richard A. Kirby, Asst. Gen. Counsel, S.E.C., Washington, D.C. (Daniel L. Goelzer, Gen. Counsel, Paul Gonson, Sol., and Leslie E. Smith, Atty., with him on the briefs), for appellee S.E.C.

Brent T. Johnson of Fairfield and Woods, Denver, Colo. (Stephen W. Seifert of Fairfield and Woods, Denver, Colo., with him on the brief), for appellee Creditors' Committee.

Before BARRETT, SETH and TACHA, Circuit Judges.

TACHA, Circuit Judge.

This case presents a question of the availability of class action procedures to a creditor filing a claim in the bankruptcy court. Sheftelman appeals from a district court order affirming the bankruptcy court's dismissal of a proof of claim filed by Sheftelman on his own behalf and on behalf of a group of bond purchasers. We affirm.

Standard Metals Corp. (Standard) is a gold mining and milling company. Standard owns fifty percent of the shares of the National Smelting and Refining Co. (NSR). In turn, National Smelting of New Jersey (NSNJ) is a wholly-owned subsidiary of NSR. NSNJ was formed in December 1982 to acquire, renovate, and operate a lead smelting plant in New Jersey. Over six million dollars was raised for this project in February 1983 through the sale of tax-exempt industrial revenue bonds issued by the New Jersey Economic Development Authority. The sale did not resolve the financial problems of these companies: a default on the bonds was declared in January 1984, and Standard, NSR, and NSNJ all filed voluntary Chapter 11 petitions in the Bankruptcy Court for the District of Colorado on March 5, 1984.

Standard filed its schedules and statement of affairs with the bankruptcy court in April 1984. None of the purchasers of the NSNJ bonds were listed in any of these documents as possible creditors. On May 7, 1984, the court set a bar date of June 10 for the filing of claims against Standard. Notice of the bar date was sent to all of the creditors listed in the schedules filed by Standard.

Dann Sheftelman purchased six of the NSNJ bonds, having a face value of $5,000 each, in the initial public offering of the bonds. On August 30, 1984, Sheftelman filed proofs of claim in Standard's bankruptcy proceeding on behalf of himself and the class of NSNJ bond purchasers. ¹ Sheftelman alleged that the purpose of the sale of the bonds had been misrepresented in violation of federal and state securities laws and that Standard had improperly benefited from the sale. Standard objected to Sheftelman's proofs of claim on November 26, arguing that the claims were impermissibly late and that a class proof of claim was not allowed in a bankruptcy proceeding. The court set a hearing date of February 5, 1985, to consider Standard's objections.

On January 10, 1985, Sheftelman filed several motions. First, he sought an extension of the time within which proofs of claim could be filed. Second, he sought an order directing that notice of the bar date be provided to the class. Third, he moved for a continuance of the February 5 hearing date. Finally, Sheftelman moved for an order that Fed.R.Civ.P. 23, governing class actions, be applicable to his claim.

Sheftelman then tried to arrange for his deposition to be taken before he left for a business trip in Portugal. He filed a notice to take a telephonic deposition on Saturday, January 19 at 10:00 AM. Two days later he amended his notice to take his deposition in person in Providence, Rhode Island, at 6:00 PM on Friday, January 25. Standard responded by requesting a protective order under Fed.R.Civ.P. 26 and an order compelling Sheftelman's attendance at the February 5 hearing. The court issued such an order on January 25, finding that it was "unduly burdensome and expensive to the estate" to attend a deposition in Rhode Island, and ordering Sheftelman to appear at the hearing or to have his deposition taken in Denver before that time. The court added that the sanction for failure to comply with that order would be the dismissal of Sheftelman's claim. Sheftelman failed to appear at the hearing on February 5 and he did not make any arrangements to have his deposition taken in Denver before that time. On March 21, the court dismissed Sheftelman's proof of claim on the alternative grounds of failure to comply with a discovery order and failure to show cause to extend the bar date. The court also held that class proofs of claim are not allowed in a bankruptcy proceeding, and therefore denied Sheftelman's motion to apply Rule 23. In re Standard Metals Corp., 48 B.R. 778 (Bankr.D.Colo.1985). The district court affirmed the orders of the bankruptcy court on October 25, 1985.

Sheftelman now appeals. ² He argues that the dismissal of his individual claim for failure to comply with the protective order was improper and that class proofs of claim are permissible in a bankruptcy proceeding. Sheftelman further contends that neither he nor the class he seeks to represent received proper notice of the bar date, thus providing cause for the extension of the deadline for filing claims. We affirm.

I.

Fed.R.Civ.P. 26(c)(2) allows a court, upon a showing of good cause, to issue a protective order specifying the time and place of a deposition. The trial court has great discretion in establishing the time and place of a deposition. See generally 8 C. Wright & A. Miller, Federal Practice and Procedure Secs. 2111-2112 (1970). We will reverse a protective order on appeal only if there has been an abuse of discretion. Otero v. Buslee, 695 F.2d 1244, 1247 (10th Cir.1982); In re Petroleum Products Antitrust Litig., 669 F.2d 620, 623 (10th Cir.1982). As we said in Petroleum Products:

An abuse of discretion occurs only when the trial court bases its decision on an erroneous conclusion of law or where there is no rational basis in the evidence for the ruling. A reviewing court should not substitute its judgment for that of a trial court. It is the unusual or exceptional case where the reviewing court will vacate a protective order entered by a trial court under Fed.R.Civ.P. 26(c).

669 F.2d at 625.

A protective order can be issued to protect a party from "undue burden or expense." Fed.R.Civ.P. 26(c). The bankruptcy court issued its protective order after Sheftelman had first scheduled a telephonic deposition for a Friday evening and then rescheduled that deposition to be in Rhode Island for a Saturday morning. The court found that "it was inappropriate to compel the debtor to incur the expense necessary to accommodate Mr. Sheftelman with his own deposition in Rhode Island." 48 Bankr. at 785. Our review of the record persuades us that the bankruptcy court did not abuse its discretion in issuing the January 23 protective order.

Sheftelman did not comply with the protective order issued by the bankruptcy court. ³ The court dismissed the proof of claim filed by Sheftelman as a sanction for this failure to comply with a court order. We must now consider whether the sanction of dismissal was appropriate in this situation.

A trial court has the power to dismiss a claim for the failure to obey a discovery order. Fed.R.Civ.P. 37(b)(2)(C). Our review of a sanction of dismissal is limited to determining whether the court abused its discretion. National Hockey League v. Metropolitan Hockey Club, Inc., 427 U.S. 639, 642, 96 S.Ct. 2778, 2780, 49 L.Ed.2d 747 (1976); Mertsching v. United States, 704 F.2d 505, 506 (10th Cir.), cert. denied, 464 U.S. 829, 104 S.Ct. 105, 78 L.Ed.2d 108 (1983).

The sanction of dismissal should be imposed only when a party has willfully or in bad faith disobeyed a discovery order. Societe Internationale pour Participations Industrielles et Commerciales, S.A. v. Rogers, 357 U.S. 197, 212, 78 S.Ct. 1087, 1095, 2 L.Ed.2d 1255 (1958). We have defined a willful failure as "any intentional failure as distinguished from involuntary noncompliance. No wrongful intent need be shown." Patterson v. C.I.T. Corp., 352 F.2d 333, 336 (10th Cir.1965) (quoting United States v. 3963 Bottles, 265 F.2d 332, 337 (7th Cir.), cert. denied, 360 U.S. 931, 79 S.Ct. 1448, 3 L.Ed.2d 1544 (1959)). The courts that have concluded that the failure to comply with a discovery order was not willful have emphasized the inability of the party to comply with the order. E.g., Thomas v. Gerber Productions, 703 F.2d 353, 356 (9th Cir.1983) (dismissal was improper when failure to pay a $750 fine for not attending a deposition was due to an inability to pay). In this context, we have affirmed the sanction of dismissal where a party did not appear at a deposition at a time ordered by the court. Gates v. United States, 752 F.2d 516, 517 (10th Cir.1985). Accord Founding Church of Scientology v. Webster, 802 F.2d 1448, 1458 (D.C.Cir.1986).

Sheftelman did not appear at the hearing in Denver on February 5, nor did he make any arrangements with the debtors to have his deposition taken in Denver before that time. The motions filed by Sheftelman's attorney do not indicate precisely when Sheftelman left for his business trip in Portugal, but it appears that he did...